Question

Julep Inc. issued 50,000 shares of common stock, $1 par, for cash of $18 per share...

Julep Inc. issued 50,000 shares of common stock, $1 par, for cash of $18 per share on January 1, 2020. Julep Inc. also incurred $10,000 in stock issue costs, paid in cash. The entry to record the issuance would include:

A.

A credit to Paid-in Capital in Excess of Par—Common Stock for $850,000.

B.

A credit to Paid-in Capital in Excess of Par—Common Stock for $840,000.

C.

A debit to Stock Issuance Costs for $10,000.

D.

A debit to Stock Issuance Expense for $10,000.

Homework Answers

Answer #1

The correct answer is "B. A credit to Paid-in Capital in Excess of Par - Common Stock for $840,000"

Reason: Companies have 2 methods of treating stock issuance costs - a) Reduction from Paid-in-Capital b) Treat issuance costs as intangible assets and write it off over a period of time.

It is clear from the options given that the company has chosen the "a" option and following entry will be passed for same:

Date Account title and explanations Debit Credit
Jan 1, 2020 Cash        8,90,000
Common Stock           50,000
Paid-in Capital in Excess of Par - Common Stock        8,40,000
(Being issue of stock)
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